6 Things You Need to Know When Getting a Mortgage on a Holiday Home

Posted on 21 June 2018 by Kath

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For many of us the luxury of buying a holiday home will mean that the property we purchase will have a mixed use. That can include renting it out to cover the cost of the mortgage, personal use as a weekend getaway or offering it as a bolt-hole that friends and family can escape to. On top of that, if its value also happens to increase in the long, or short term then that can only be an added bonus.

It can be difficult to find a property that delivers on all of these elements in equal measure, so it’s important to consider what is most important to you. Having a clear goal in mind will make the process of finding your dream holiday property much simpler.

Here we look at our top tips on what you need to consider before investing and becoming a holiday landlord:

1. Choose the right property

Without taking the fun out of buying your dream holiday property you do need to put your business hat on. It’s important that you get to know your customer and the product/location you’ll be selling them.

Unless you’re very experienced, go with what you know and buy a property in a location where you yourself enjoy going on holiday. But consider how the resort and location will affect your ability to let out the property: will there be high-seasonality or will you be able to let it year round? How much do other people charge for a similar property in that area? This research will enable you to judge for yourself if it’s worth the rent you’ll be charging.

Buying in an area you enjoy visiting means that you’ll be able to use the home yourself when it’s unoccupied – but if the ultimate goal is rental income and capital gain over time, you may need to consider other locations.

2. Get the right mortgage (and right advice)

If you’re looking at a holiday home that will be let to the general public, you won’t be able to use a normal mortgage. That applies to both buy-to-let or and a second residential mortgage - lenders in this space will usually prohibit you from letting the property as a holiday home. You’ll therefore need to apply for a holiday let mortgage – a specialist type of mortgage that is specifically for owners of holiday homes who stay in the property and let it out to holidaymakers. One of the main drawbacks to holiday-let lending is that there isn’t a large selection of lenders who operate in this space. Therefore rather than going direct to one lender it’s always advisable to speak with a mortgage broker who can compare and find the best mortgage for your needs.

3. You’ll need to pay your taxes!

If you are letting out the property you’ll need to inform HMRC that you plan to start letting out your holiday home, as tax may be liable on the income you make from it. You need to report any rental income above £2,500 in your self-assessment tax return. If the income is less than this, you should still notify HMRC.

If you’re buying the property through a company, the rental income has to be declared as business income – in this instance it’s always best to speak with your tax adviser.

 For more information on the taxes liable in England and Wales click here.

4. Apply for the allowances you’re entitled to!

Letting out a holiday home counts as a trade rather than an investment, which gives you more favourable tax treatment. You may be able to claim various allowances and reliefs, including things like:

  • Capital allowances on furnishings and equipment
  • Capital gains tax reliefs, e.g. business asset rollover relief.

In order to qualify for these allowances your holiday home must meet certain criteria, including being available at least 210 days per year and let for more than 105 days a year. Also no single guest may stay for more than 31 days, and you must be charging the market rate. It’s advisable to speak to a tax adviser to find out how best you can make use of the allowances available to you.

For more information on the costs you can claim back in England and Wales click here.

5. Get the right insurance

If you’re buying a holiday let you will need to invest in a speciality Holiday Insurance. This will cover you from accidental damage, public liability, malicious damage and you can also get insurance to cover loss of income. John Charcol can help arrange this insurance for you as part of our home insurance service.

6. Plan for the unforeseen and invest for the long term

Property investment can be a great way to make money – but as with any property purchase you’ll need to plan for unexpected repairs, a lack of rental income and a whole number of unforeseen circumstances.  No-one ever really really knows what will happen to house prices in the future so it’s always advisable to concentrate on the bigger-picture and make any investment with a long term goal in mind.

For more information on applying for a holiday-let mortgage and specialist holiday insurance call us now on or submit an enquiry here.

Categories: Buy to let, Mortgages

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